There's a Dark Side to the American Shale Boom
In natural gas, the U.S. is already the top producer (just ahead of Russia) and never saw anything like the decline experienced by oil. But the past decade has been pretty spectacular for gas, too.
This energy production boom, enabled by hydraulic fracturing and other new(ish) methods for getting oil and gas out of shale, has had all sorts of positive impacts. One group of economists estimated in 2015 that 725,000 new oil-and-gas-extraction-associated jobs had been created from 2005 to 2012, and another group estimated in 2016 that the broader economic benefits of the shale boom had brought 4.6 million net new jobs and $3.5 trillion in increased stock market value. The U.S. trade deficit is in the news this week for increasing to a post-recession high in January, but it would have increased more (and be at an all-time high) if it weren't for the sharp decline in net petroleum imports over the past decade. The rise in natural gas production has enabled a big switch away from coal-fired electricity generation, which has been terrible for coal miners but brought cleaner air and unexpected progress in reducing carbon dioxide emissions.
So what's not to like?
Well, there are some immediate environmental downsides to fracking -- or at least poorly done fracking -- such as water pollution and earthquakes. There's also evidence that methane leaks from natural gas production are canceling out some or even all of the greenhouse-gas gains from burning less coal.
But here's my bigger concern, which started nagging at me when I wrote about the trade scuffle over solar panels in January and grew in intensity after I read Amy Myers Jaffe's essay on "Renewable Energy and Chinese Power" in the March/April issue of Foreign Affairs. Jaffe's argument (which Liam Denning discussed in a Bloomberg Gadfly column earlier this week) is that after some not-very-successful efforts to assemble a global network of oil-producing friends, China has decided renewable energy is its ticket to economic autonomy and growth. Writes Jaffe:
The goal is not just to reduce China's dependence on foreign oil and gas but also to avoid putting the country at an economic disadvantage relative to the United States, which will see its own growth boosted by its exports of oil and gas to China. China's aims are also strategic. By taking the lead in green energy, Beijing hopes to make itself an energy exporter to rival the United States, offering other countries the opportunity to reduce their purchases of foreign oil and gas -- and cut their carbon emissions in the process.
The U.S., meanwhile, remains deeply ambivalent about clean energy. Yes, electricity generation is probably going to keep shifting toward renewables, despite the efforts of the current administration to shore up coal. While electric cars have been tomorrow's big new technology for quite a while now, tomorrow does seem to be getting closer. And overall U.S. energy consumption has barely budged since 2000. But it has so far proved impossible to build any kind of durable political consensus here on combating climate change, and the U.S. has generally been less willing than other rich nations to tax fossil fuels and push the use of renewables.
Then again, one should probably expect a lot of ambivalence about displacing fossil fuels in a country that's in the midst of regaining its position as the world's undisputed fossil-fuels leader (it's No. 2, behind China, in coal production). That's what worries me. The shale boom may well have made it impossible for the U.S. to take the leading role in shaping the post-fossil-fuel energy landscape -- and it seems to have made it more likely that China will.
This is to some extent a silly thing to worry about. In 15-plus years of writing on and off about energy (it started with an OPEC meeting in Osaka in 2002, which I prepared for in part by talking to Amy Myers Jaffe), the main thing I have learned is that in energy, even more than in other endeavors, nobody really knows what's going to happen next. The shale boom is creating jobs and prosperity in the U.S. right now. The consequences I'm talking about are uncertain and years down the road. Still, someday the fossil-fuel era is going to end -- and the U.S. is now on a course where it seems much more likely to have to be dragged kicking and screaming into the next energy era than to lead the way.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
For more columns from Bloomberg View, visit http://www.bloomberg.com/view.
©2018 Bloomberg L.P.